What is a lump sum contract in construction?
A lump sum contract is an agreement to deliver a defined scope of work for one total price, so the contractor keeps any savings and absorbs any overrun unless the scope changes. AIA documents call it a stipulated sum, and federal work calls it firm-fixed-price. The owner usually pays by percent complete and the price moves only through change orders.
Under a lump sum contract, the owner and contractor agree on one number for the whole scope, for example $640,000 to build out a dental office per drawings dated March 3. The owner does not see the contractor's costs and does not pay more if those costs run high. The price moves only through change orders. AIA documents call this a stipulated sum, and federal contracting calls its version firm-fixed-price; this site covers that broader idea under fixed-price contract.
It is the most common structure for hard-bid work, because it lets an owner compare bids on price alone.
How billing works under a lump sum
One price does not mean one payment. The contractor breaks the sum into a schedule of values, and each month it bills the percentage complete on each line through a pay application. The owner or architect checks the percentages against the work in place, not against the contractor's invoices.
| Line | Scheduled value | Percent complete | Billed to date |
|---|---|---|---|
| General conditions | $58,000 | 40% | $23,200 |
| Framing and drywall | $96,000 | 75% | $72,000 |
| Plumbing | $84,000 | 50% | $42,000 |
| Casework | $71,000 | 0% | $0 |
Because billing follows percent complete and not cost, the contractor's books can show a job ahead or behind on cash. That gap is what overbilling and underbilling measure on a WIP report.
When a lump sum fits
The Federal Acquisition Regulation, at FAR 16.202-2, says a firm-fixed-price contract is suitable when a fair price can be set at the outset, for example when there is adequate price competition, good price history, or performance risks that can be identified and reasonably priced. Private owners use the same logic.
- Good fit: complete construction documents, a scope the contractor has built many times, several bidders.
- Poor fit: gut renovations with unknown conditions, design still in progress, or a schedule so long that material prices could swing. A cost-plus contract, GMP contract, or unit price contract may share risk better.
Where lump sum disputes start
Almost every lump sum fight is about what was included. Say the drawings show a new storefront but the specs are silent on the steel header above it. The owner says it is obviously part of the storefront. The contractor says it was never drawn and is extra. Whoever reads the documents more convincingly wins, and the contractor has already spent the money.
- Bidding from incomplete documents without listing assumptions.
- No written clarifications and exclusions in the proposal, so the contract scope defaults to everything the owner can argue for.
- Doing extra work on a verbal request and trying to bill it later.
- No allowance for items the owner has not selected yet, such as fixtures or finishes.
- Front loading the schedule of values, which creates trust problems when the architect notices.
Related terms
See contract sum, allowance, contingency, and design-bid-build, the delivery method most often paired with lump sum pricing. On a lump sum job the margin is whatever cost control leaves, so weekly job costing matters more than on any other contract type. Smart Business Automator compares cost to date against the schedule of values in its job costing and WIP automation.
Frequently asked questions
Is a lump sum contract the same as a fixed-price contract?
In everyday use, yes. Lump sum and stipulated sum are the common private construction terms, and firm-fixed-price is the federal term. Some people use fixed price more broadly to include fixed unit prices.
Does the owner see the contractor's costs on a lump sum job?
Usually not. The owner pays based on percent complete against the schedule of values. Cost records may be requested to price change orders or settle claims.
Who keeps the savings on a lump sum contract?
The contractor, unless the contract says otherwise. That is the trade for carrying the overrun risk. GMP contracts often split savings, which is one of the main differences.
Can the price of a lump sum contract change?
Yes, through change orders for added or deleted scope, differing site conditions, owner-caused delays, or an escalation clause if the contract has one.
